Lew Dickey & John Dickey
September 3, 2013
Last Friday, as most were packing up for the long Labor Day Weekend, the landscape of the radio business took another seismic shift with CCumulus Media's announced purchase of Dial Global, and spinoff of a large chunk of stations to Townsquare Media, (NET NEWS 8/30).
All Access Pres./Publisher Joel Denver caught up with Cumulus Media Chairman/Pres./CEO Lew Dickey and Co-COO John Dickey over the holiday weekend for an exclusive interview. They explained what this transaction, (expected to close before the end of the year), means to the company going forward, as well as the impact on the radio and network industries at-large.
Cumulus Media has transformed again. With this merger on the network side and making Westwood One the surviving brand on the content delivery side, can you tell us what this does for you, the company, your portfolio focus, and the radio stations that currently do business with Dial Global/Westwood One?
LD: This transition is very good for both Cumulus and the radio industry. We started Cumulus in 1997 with a focus on acquiring small and mid-sized market radio stations. As we built the company we wanted to move up market and in 2005 we bought Susquehanna, which gave us positions in four of the top-10 markets. Shortly after signing the deal, we then tried to buy ABC Radio because the broadcast assets were highly complementary to Susquehanna and the ABC Radio Network would give us an entry into the content business. Unfortunately, we were outbid by Citadel, but we ended up buying the whole thing five years later.
Ironically, shortly after signing the Citadel deal, we took a run at buying Westwood One, but were again outbid, this time by Dial Global. Fortunately, this too worked out as we were able to buy it after all.
The business logic behind this combination is very sound. It enables us to compete on a more level playing field against our friends at Clear Channel in the content verticals of Entertainment, Talk and Information, as well as against our friends at ESPN in sports. Competition is good for affiliates, advertisers and producers. As a result of this transaction, there will be more choice, better competition and increased investment leading to greater innovation.
The mission of our network is to create great content and distribute it in many forms to maximize its value. Audio, like video, is widening in both the amount and the way it is being consumed. We believe audio is currently undervalued as a medium and will experience a resurgence as marketers come to realize its intrinsic value in the marketing mix. This includes improved ad technology, which will make it easier to buy and create a more level playing field with digital.
An interesting look at the future of audio is transformation taking place in video. TV networks are creating and producing for their own networks, but also selling to Hulu, Netflix and others. This doesn't diminish TV; all of these new channels for radio and audio distribution are simply addressing where the public expects to find content -- and we want to be leader in audio content creation and distribution.
We believe this is also a very positive development for the industry because it creates genuine competition in several key content and service verticals and that leads to value for the end consumer -- affiliates, producers and advertisers. We are also in the unique position of having experience on both sides of the table. At Stratford Research, I was a vendor to the industry for over 10 years before starting Cumulus. We understand the needs of broadcasters and as an owner/operator, we also have the ability to battle test products and services before we offer them to our affiliate partners.
Now we can innovate with more choices and products. We will look at our affiliate partners' needs and address them in all market sizes. Our affiliate partners will help us continue to innovate. And I am setting up an "advisory council" of broadcasters to help us do this. Just like our 500 stations tell us what works and doesn't, so will this council from a different perspective.
Beginning in 2014, we will offer sales training, collateral sales marketing for our affiliate partners and access to our enterprise software as well. We believe we have more innovative products and services to help our affiliate partners do their jobs better, and drive more profit to their bottom line. What's good for us is good for the industry.
With respect to our broadcast strategy, our focus is squarely on the top-100 markets. The transaction with Townsquare made a great deal of sense for both companies. (Chairman/CEO) Steven Price and (EVP/CFO) Stu Rosenstein are building a great company and with this acquisition they gain important scale. For us it was a source of funds to be able to buy Dial Global without taking on any debt or selling equity. We expect to continue to add to our platform in the top-50 markets with a focus on the top-25 markets. It's also unlikely that we'll be selling any more markets.
Why are you going to brand the merged network as Westwood One?
The Westwood One brand will survive, but we haven't yet determined what we will be calling the combined company.
There is so much equity in Westwood One, and it is truly a global brand. We are in the audio content business and can serve this content across multiple platforms, digital and otherwise. The name Westwood One will reflect the independent nature of our company, beyond our owned and operated stations -- producing long and short-form content to almost 10,000 stations. We believe Paul Caine made the right decision in consolidating DG's assets under the Westwood One brand.
How important was doing a cash neutral deal to the future of Cumulus?
LD: Putting this into perspective, we have a $4 billion balance sheet. Though this deal is only one-tenth the size of the Citadel deal, it is equally as important to us from a strategic standpoint to position us as a viable competitor in audio content.
Wall Street seemed pleased with your announcement last week. Did you identify a specific dollar amount in savings like you did when you announced Citadel, which was $50 million at the time.
LD: The Street liked what they saw for good reason. It is highly accretive to EBITDA and Free Cash Flow as well as nicely de-leveraging. It also demonstrates that we are actively evolving our company and positioning it in a rapidly changing media landscape. Consumers are consuming more audio than ever before, and they are doing it in a variety of ways. We need to be responsive to these developing trends or risk being a smaller part of our listener's lives.
As for the deal itself, it was a highly complex transaction between four parties. These are not easy to conceive or execute. I feel fortunate that we were able to get it signed and look forward to executing our plan post-close.
JD: There will be duplicative services and positions that we will need to consider as we merge these two networks into one, and there will be some savings to be realized in time. But no, we haven't targeted a specific number for savings.
In Dial Global/Westwood One, you have a big Sports investment, a number of Talk personalities, and a broad mix of music shows/formats. How do you see the DG asset mix going forward?
LD: This is a very complementary mix of assets. Clear Channel/Premiere is dominant in information, entertainment, Talk and services. ESPN is the clear market leader in Sports. We have an opportunity to compete in all of these important verticals and that will lead to innovation and more choice for consumers.
You were quoted in Friday's release as saying your goal is to be the leading producer of premium audio content while building your top-100 market broadcast platform. How close are you to that goal?
LD: We have a long way to go, but with hard work and the proper investment in people, content and systems, I'm confident we will get there.
JD: The interesting thing about this deal is that it will cause people to look at where we are going with our company and compare it against the size of Clear Channel. Clear Channel owns basically the only rep company, the largest radio network with Premier and over 800 stations that dominate in major markets as well as having the dominant audio aggregation platform in iHeart.
I have a lot of great respect for them and they are fine partners and competitors. This deal will create a more competitive balance and we think we can take this platform and grow it. When you have more healthy competition in terms of audio content and programming products and services, it's a good thing for the business. We are excited to provide this stable environment for many stations in so many expanding services.
So, are you hinting that at some point you will look to launch your own digital platform, and no longer be with iHeart?
JD: We are part of iHeart. And when Clear Channel came to us and others with the idea of having a more unified strategy to compete against Pandora, Spotify and others, we said yes. They are great partners for us in this area, and we currently have a contract to work with them in this area.
What role will the current Cumulus Radio Networks management play in the operation of DG, or will it be the other way around?
LD: We are inheriting a lot of very talented people in this process. Our goal is to preserve continuity and provide a challenging environment for our talented people to grow with us.
Last year you formed Cumulus Sound Solutions to generate new revenue for the local stations. Are you happy with its progress to date?
LD: I am our toughest critic, but our local revenue performance is leading the industry for the last four quarters. Our team is beginning to hit their stride on executing our plan. I'm proud of our team, but we always strive to improve.
Buying DG, we get TM, the "Tiffany standard" of broadcast production. We think there are ways to combine the talent at TM with the additional mission of Sound Solutions to create an interesting product for the marketplace that will help broadcasters sell more advertising through the use of great creative -- spec spots and campaigns. We are excited to be able to offer this to our affiliate partners in 2014.
How does all of this affect your relationship with CBS in regards to Dial Global inventory, since they carry so much of it?
JD: We are simply moving forward. As you know, we are currently working with CBS Sports, and we've had a very exciting and successful launch on over 350 affiliates, and we have a lot of exciting plans to keep it growing. This new deal allows us to become the distribution point for some amazing content: NFL, NCAA Football, NCAA Basketball, The Masters, The U.S. Open, The British Open, the PGA Championship and so much more.
And what about the persistent rumors that once you get your arms around Dial Global/Westwood, that it will lead to an eventual purchase of CBS Radio?
In respect to those rumors, all I can say is that CBS has a great radio platform, as well as an amazing business and balance sheet. They don't need to sell and we are focused on growing our company and key verticals like Nash FM.
These rumors will continue and for those who want to see this happen, the rumors just puts more wood on the fire. To us, it's just fun stuff to read about -- we have a focused strategy.
Part of that Sports package from DG/Westwood One includes distribution and production NBC Sports Radio with over 18 shows. How will this deal affect that programming, since you are already in business with CBS for sports?
JD: All of this is to be determined. DG has a relationship with NBC, and since we are not the owners yet, we can't comment yet. However this all works for us in our supermarket approach with lots of shelf space and lots of products. This allow us to present a lot of options, and for our affiliate partners to pick and choose the products and services, through this merger, that they feel will work best for them.
Do you see a future in continuing distribution of the liberal Talk shows that Dial Global distributes, such as Ed Schultz, Stephanie Miller and others? And would you potentially devote any Cumulus stations to that format?
JD: Lots of great content is there at DG for a good reason. We will step into those shoes and support those partnerships. We also want to be competitive in each of our markets, and will address those needs from our company owned-and-operated stations and see what the market voids are, calling on our own products and services as needed.
Once this deal closes, it will put us in business with 10,000 stations outside of our O&Os, which number 500. We now have an even stronger platform to do more partnerships and to develop more talent.
We simply have to develop more talent. If you have stations and a network, it's not the only pool to fish in. You have a global market -- and we believe we will offer a more competitive balance to the marketplace.
What are the long-term plans for WABC-A/New York and KABC-A/Los Angeles -- WABC without Rush and Hannity, KABC without Hannity. Will both remain Talk stations, of will flip one or both of them to one of the Sports networks, or something else?
JD: They will both remain Talk stations and will have an opportunity to be more local in the markets they serve. You will see some great hyper-local talent surface. Rush is great and we are happy to be in business with him, and he's very strong. But both WABC and KABC are serving large communities and we will invest in local programming to make these stations better.
What worries you more -- over-the-air competitors, or Pandora, Spotify and the upcoming iTunes Radio platform from Apple?
JD: Not sure which worries me more, to be honest. They are all of concern. We are in a competitive and fragmented market with many ways to get our content out. We actually see all of this as opportunity.
How is the NASH FM rollout going? Is it fulfilling your expectations to date?
JD: Yes, it is doing fine. We are up and running and we are the third or fourth-most-listened-to Country station in America depending on weeklies. Blair Garner is doing great. We feel the NASH FM brand is exceeding expectations on business, and we are easily six months ahead of where we wanted to be in terms of programming.
Are you still on track to consider brand names for other Cumulus formats?
JD: Yes. We have other content verticals to develop brands around. Talk is one of them, as well as others.
Cumulus has become very big, very fast, and now will take another leap forward. Are you satisfied that you have enough corporate staff to handle the growth?
JD: We need to make changes to address competitive challenges and content delivery methods -- and all companies are going through this. If you are not looking at where the world is going and aren't on the front end of these changes, you are in trouble. We are in the radio business and the audio content business.
There are many ways to distribute content -- we need to be on top of that and offer the best content and ways to get it out there.
Any final remarks?
LD: Simply that our strategy is "the big tent" -- more content and choices for our affiliates and more ad packages for our advertising partners. Our goal is to offer more solutions -- and to sell our clients more product as a result -- while continuing to deepen our relationships. This will enable us do business with people we are currently not doing business with. We want to do more, not less. This becomes a win-win for everyone.