June 18, 2013
Clear Channel Chairman & CEO Bob Pittman is a free-flowing fount of ideas and passion. All Access President & Publisher Joel Denver grabbed 40 minutes of his time for an exclusive Power Player interview, which had so much information and shareable content that we've divided it into two great weeks of reading.
In part one, Pittman, while very pro-radio, points out not only the shortcomings of radio but offers some well-defined suggestions on how, as an industry, to fix it including his recent call for a need to fix lame radio ads (NET NEWS 6/14).
Pittman talks about radio then and now, the role of radio morning shows; iHeartRadio's strategy and what, in his eyes, qualifies as radio; and some thoughts on Pandora, Spotify, iTunesRadio and Google Play. He also delves into Clear Channel's well-publicized financial moves and why he believes it's on the right path -- as well as his take on the touchy subject of staffing and restructuring.
JD: Bob, you've always been considered a creative and visionary executive -- from your early days as PD at WPEZ/Pittsburgh, WMAQ/Chicago, and WNBC/NY to your days as CEO at MTV, Century 21 Real Estate, Six Flags, Quantum Media, COO of AOL & AOL/Time Warner, Exec Producer/Creator of the Morton Downey Jr. Show, co-founder of Pilot Group LLC ... and now as Clear Channel Chairman & CEO.
How would you compare the challenges of your current job to your prior ones?
BP: They are all the same element. Which is if you do these jobs well, it's what's going on with the consumer, and being honest about consumer interest. When I was in Detroit in the early '70s we had special promotions where consumers could get FM converters added to their AM radios.
When I started MTV, the cable industry only reached 18 million US households. When I went to AOL we were moving from a proprietary computer network to the Internet. The Netscape browser was just invented so we were making a major transition there. When I was at Time Warner as COO, we had all the issues going on with the music companies, HBO, Warner Bros. Records and Warner Bros. Pictures. Again, at all of these stops it was all about watching the consumer and figuring it out.
What I love about this industry and this company is that broadcast radio's relationship with the consumer has actually been tremendously strong. In 1970, about 92% of Americans listened to radio every week, and in 2012 92% of Americans listened to radio every week.
The actual numbers of people we reach has increased over time and is still increasing ... and we have a damn good consumer product. If TV is "America's Hobby," radio is "America's Companion."
The problem of being a companion is that we don't talk about that -- and we take them for granted -- but we talk about our hobbies a lot. If you stand back and see how important we are to people, we are wildly important. The truth is our companions and friends are more important than our hobbies.
That's an exciting framework. So then you say what happened to our revenues? We dropped from the low $20 billion to $16 to $17 billion in revenue. Most of that -- I hate to say it -- is self-inflicted.
As an industry we have spent our time talking to Radio buyers. Well also have to acknowledge that if you're not talking to media planners, supervisors, the heads of the media agencies, the CMOs at companies and the CEOs at advertisers -- at a certain point you make yourself vulnerable to other industries saying, "I got this great new product -- why not take some of that 'radio money' and give it to me?"" And if they haven't heard someone else say: "No" ... you don't wanna do that for this, this and this reason," you are vulnerable -- and that's what happened to us.
If you look at our growth opportunities, we are in a fantastic shape. Because when I think, "What do folks want to take onto mobile?" It's radio. And, radio is much different than the music collection services like Spotify, Pandora, etc. I am really encouraged about the radio industry and very excited about it.
Having been at all of these other companies gives me a pretty broad perspective; I've looked at things from many angles. And when I say, "Other people took our money," I was one of those people! When I went to AOL, we had as a company $5 million in advertising and when I left we had $2 billion -- and we took it from established media by talking to buyers instead of talking to clients.
When I was at MTV, we almost went out of business as we had no advertising revenue. The rule to buy national network advertising was 65% reach of the country and a three-rating ... MTV doesn't even have that today! We had to go and change the rules. There had never been a profitable advertiser-supported cable network up until that point, and MTV was the first one.
All of those have added together to where I know this game and I know exactly what we need to do. So now it's not only harnessing the power of Clear Channel, but harnessing the power of this industry. There are more some smart people in this industry and I don't think that there is an industry that's even more competitive than radio. Mel Karmazin and I used to compare notes and we agreed that the best training ever is radio. If you can make it in radio, you have had training for a competitive behavior you're not going to find in other industries.
JD: How has running radio and programming changed from when you did it to now, and how?
BP: Why, it's funny ... I think many of the things are the same. Instead of AM fighting FM and trying to migrate to FM and make money on FM, substitute the word "digital" for FM. A lot of things haven't change conceptually, but have changed in terms of what they are.
In my day there was a limit to how many stations you could own. And today we have the ability to create a national platform. Today, we talk to advertisers about local and national reach -- which wasn't possible before. The sophistication of technology in terms of how you can operate a station is mind-boggling and wonderful, and we will look back in 20 years and say we were pretty archaic in 2013! Technology continues to change at a roaring pace.
But, what radio is to the consumer is essentially the same! It's my companion. It's the person who tells me what's going on in the world -- it's the station that's the beacon of my tribe.
I've looked at morning personalities on music stations and they don't play a lot of music. Why? Because consumers have been asleep for eight hours and they want to get caught up on what's going on. A lot of that is gossip, info about the world events on TV, and what's coming up today. And those concepts haven't changed a whole lot. So in essence, it's the same business -- and the changes we see are changes in technology or in the marketplace. If we are smart we harness them and don't have them do something bad to us.
JD: You are running two huge platforms with stations such as Z100 and KIIS-FM, and then there is the iHeart Radio side. There are different applications and approaches to both as they are different platforms, right?
BP: To me it's somewhat the same. iHeartRadio is an all-in-one service that lets listeners have access to custom radio -- which is not radio -- but a nifty way to create a playlist. In my business and every business I've ever been in, it's convenience that wins. It's a great selling point.
So when I look at iHeartRadio, what we have is one more platform for the stations. Z100 is a franchise that consumers love -- so whether they receive it over the air, or over their phone, or over the iHeart platform, they don't care. They don't think about watching Channel 4 that it is over cable or through a dish ... and not over the air.
We're selling and promoting these great franchises that they love, such as KIIS-FM, KFI, Z100, WLW, Y100 and so many more. The key is to making sure that they can find their favorite franchises wherever they are.
If I love Diet Coke and I go to a supermarket and there is no Diet Coke, I might get Diet Pepsi ... and if this happens long enough that I can't find Diet Coke, I may grow to prefer Diet Pepsi. We just have to make sure that these franchises are available wherever they might want to get them. So if we are going to the supermarket we have to make sure our Diet Coke is there ... and if I go online I need to be able to find KIIS-FM, Z100 and WLW. Their presence continues to ensure their consumer loyalty.
Sure, we've let other station groups use the iHeart platform and they keep their revenue and we keep our revenue. It's important to embrace the technology, not run away from it. The only danger we have is putting our heads in the sand.
JD: We're always impressed with touchy-feely promotions in general as they reach so many folks on an emotional level, and even more so when they are launched on a national basis like iHeartRadio's ""Show Your Stripes," which is reminiscent of what a local station would do. Do you foresee a day when iHeart Radio will have its own personalities on the curated music channels? Will there eventually be an iHeart/L.A. or an iHeart/NY?
BP: No. We have shied from iHeart being the name of a station or having personalities. It's more so the name of the platform and we lend it to the iHeart Music Festival and the Show Your Strips campaigns, among others.
JD: Clear Channel's National Programming Platform is a big part of your strategy including Premium Choice and the syndication of your big guns such as Ryan Seacrest, Elvis Duran, Bobby Bones, Bob & Tom, John Boy & Billy, and a few others. Given PPM and its creative restrictions -- less talk/more music -- how will you continue developing strong local talent who will be your next wave of stars?
BP: (CCM+E Chairman & CEO) John Hogan and I talk about this a lot as a strategic issue. I got started at a local station at age 15 in Brookhaven, MS, and there was very little automation anywhere back then. So they hired high school kids to be on-air, and we emptied the trash, etc. That gave us a break. We were not very good and inflicted ourselves upon the citizens of Brookhaven, MS -- it was a training ground.
Today in that same market, we serve the community better with more experienced talent on-air as the technology exists, so that the talent doesn't have to be co-located with the transmitter. The challenge becomes where do we develop new talent? And John and I spend a lot of time considering this.
Now folks get their start as part of the Elvis Duran Show in a minor role, and they spin out and grow in different ways, and move to other markets or shows in the cluster. We're trying to spot our talent and start career development where we can. We have lots of opportunities for people to grow -- and there are opportunities off-air at iHeartRadio, too. So, there are multiple paths ... and it's too early to know where it will all end up, but know that we are in the business of developing new talent.
JD: In the last couple of weeks, Clear Channel has figured prominently in financial news. Moody's downgraded Clear Channel's rating to Caa1 for your recent proposed $1.5 billion term loan D, (Net News, 5/13).
Clear Channel has also completed a complex set of financial maneuvers, where you did a private offer to exchange 10.75% Senior Cash Pay Notes Due 2016 and 11.00%/11.75% Senior Toggle Notes Due 2016 for Newly Issued Senior Notes Due 2021, (Net News, 5/21 and Net News, 6/5)
Those are some huge interest rates. What does this mean to day-to-day operations, and what's your plan to get this to a manageable debt load?
BP: To me, so far it's a manageable debt load. This was an LBO -- a leveraged buyout. So there is a lot of leverage on the assets and it supercharges your equity return. And the company is worth a lot more than the debt.
This company is on that path. I personally invested in the common equity behind the debt, so I am a great believer. The transactions are in the direction of a big win and success for us when we refinanced this debt. This allows us to have a pressure on us to continue to grow and innovate, which I think is a positive pressure.
Companies that don't have any competitive or financial pressure to grow, generally don't grow.
JD: How would you value iHeartRadio versus the broadcast radio assets?
BP: It's all a part of the whole and it's one more platform we use to get to the consumer. I don't think you can peel them apart; I don't think its two separate businesses. I know some people do think they are two separate platforms and technologies, but the consumer leads -- and it's merely us following the consumer.
We're also beginning to appear in the dashboard of cars in the AM/FM slots as well as HD and the new digital dashboards, where you see iHeartRadio up there as a way to navigate to the stations. It's incumbent on us to continue to look at new technology and new consumer offerings and make sure we are part of this.
A company our size should be ubiquitous and be willing to drag along others in the radio business in the same direction. As an industry, we benefit more from thinking of ourselves as radio instead of just my station versus your station.
While we are wildly competitive every day, the big dollars and opportunities are the things we all do together.
JD: Given the recent flurry of rumors and cost restructurings, are you satisfied with the current staffing at the company's local stations, or is another R.I.F. a reality?
BP: What we did last year, and people talk about it being a Reduction In Force, but the head count did not go down. Last year we adjusted where the head count was and put more into national sales and national programming platforms for our programmers to use locally and more folks into technology.
It's a hard thing to do as it dislocates people, but you have to have the courage to do what's best for the whole company -- and that is to say that technology has changed and we have to adjust to it. And those jobs change, too. We have to decide that we don't have to do business that way -- and so we make changes. Sometimes that has implications to jobs and more often to implications to systems. And you don't hear about that stuff ... you hear about job changes.
Unfortunately, you have to do this in every business. Look, IBM got out of the personal computer business and Lenov took that division away. These are radical changes you make in companies -- and that's hard. The personal part is the worst part of sitting in a job like this or one like John Hogan has, because the whole company looks to us to make these hard decisions and guide them in the right direction.
John has done a fantastic job of that and we have tried to handle it to have the minimal impact on our employees; that's been one of our goals. But unfortunately, if you are going to stay abreast over time with technology, it will change how you structure things.
End Of Part 1 -- Part 2 Next Week