October 1, 2013
What a difference a few years make. It wasn't that long ago when Clear Channel, CBS Radio and Cumulus each owned a plethora of radio stations in scores of markets, large and small, across the country. Since then, each one of them has sold off stations in their smaller and medium markets. That sell-off has been responsible for the dramatic growth of Townsquare Media, which acquired over 300 stations in 66 markets in just three years. The big difference: Unlike the "Big 3," however, Townsquare has no interest or desire to move into the large markets. Its "local" focus has been instrumental in the company's success. Here's how EVP/Mergers& Acquisitions and Business Development Alex Berkett sees their dramatic growth.
How did you come to Townsquare?
My background is in media investment banking on Wall Street. In 2009, I partnered with Steven Price and Stuart Rosenstein, the CEO and CFO, respectively, of Townsquare, and we began looking for media investment opportunities. We chose the radio sector because there were a lot of underappreciated attractive opportunities, in large part because of radio's remarkable resilience with its audience. We felt radio was dramatically undersold to investors and advertisers. When we found the right opportunity, we partnered with Oaktree Capital to acquire the assets that became Townsquare Media in 2010.
How would you describe the past three years for Townsquare?
It's been an eventful three years-and-a-half years! We remain as bullish on radio now as we were when we entered the space. We see the same investment highlights we saw when we decided to invest in radio. Our plan has gone well, going from owning zero stations to 312 stations in 66 markets.
What can Townsquare do to change the perception of radio being underappreciated?
Because we operate in small and mid-sized markets, we spend a lot of our time with local and regional advertisers, making sure they're aware of the resiliency of radio with their customers. Advertisers appreciate the value terrestrial radio's listeners offer them. On top of that, we're adding other products to better serve both our audience and advertisers - including new digital and live events products, which have a similarly strong audience reach and effectiveness.
Are you also concerned that radio is underappreciated by national advertisers?
The perception of radio from all advertisers - national, regional and local -- is important. I was making the point that much more of our base is local and regional advertisers, rather than national, based on our market footprint, and as a result, that's where we spend a bit more of our time. The national advertisers who invest in radio as a medium know that it works, and the national advertisers who are charged with driving top-line growth in the face of declining brand loyalty are recognizing they need to look at radio with fresh eyes. Radio today has every right to compete and win as a proven and highly effective mobile and social media.
Do you feel that taking the local and regional sales approach helped Townsquare withstand the soft economy?
Without a doubt. If you look at the data in our markets, from housing values to marketing and consumer spending, you'd see that in all those measures, small and medium-sized markets are less volatile than larger markets. Any place where home values can double or halve by Christmas is not our type of market; Duluth, Minnesota is our type of market.
Have Bob Pittman's efforts to evangelize the advertising community to radio helped your cause?
We love what he's doing; Clear Channel has done a variety of things to shine a positive spotlight on radio as a whole and tell the story of radio's effectiveness. What we find interesting is that although radio's message to advertisers has not been as powerful as it should have been in the past few years, the listener's commitment and connection to radio has remained strong. We've held our audience and relevance while others have lost significant ground. We should all be evangelizing the category like Bob.
Speaking of Clear Channel, it has set up several revenue sharing deals with a bevy of record labels, most recently the Warner Music Group. Will Townsquare get involved in such deals?
First off, we're encouraged by the deals and transactions between recorded music companies and media businesses. We're encouraged that the free market is bringing its own solutions to the situation. We are hopeful that the government does not try to legislate solutions and instead relies on the market to continue to work itself out. Regarding our company, we're keenly aware of what's going on and are evaluating opportunities for ourselves.
Did Townsquare experience growing pains in the past three years as you grew your station roster?
Like any business, we've had our challenges. However, we entered into this with a plan; we prepared ourselves with a structure that could evolve and we continue to evolve with the assets we have assembled. While not perfect, we have been pretty successful in handling our growth to date.
After acquiring Cumulus and Peak stations, do you give yourself a certain amount of time for the employees at those stations to adapt to a changing corporate mentality?
We have a very good integration template and we have done this successfully a number of times. Like every other company that has done this, we bring in new assets and new human capital, then get them on board with our strategy and up to speed on our systems and practices. Based on our experience, it's something we can accomplish in a matter of weeks or months, not years. And we've actually found that quite often our new employees are invigorated by our business model and strategy.
Do you foresee Townsquare buying more properties in the coming months, or do you feel the radio group is at a stage where you're more focused on optimizing the properties you currently have?
We'll continue to evaluate acquisition opportunities that fit our criteria, which are leading brands in small to mid-sized markets. We'll continue to pursue opportunities at prudent valuation levels. With that said, we obviously have our hands full right now. We wouldn't expect anything new to happen in the near term, but no matter what happens, we'll continue to focus on small and mid-sized markets.
As a "big" radio group -- at least in terms of the number of stations - will you adopt corporate radio tactics such as voicetracking and "efficiency" downsizing to optimize your financial situation?
We're a lot more focused on growing revenue than we are on cutting costs. Of course, we're also always extremely prudent with our capital from a cost management perspective. However, one of the key value propositions of radio is connectivity with the local community and localization; we think those two components differentiate radio from an iPod, Pandora or satellite radio. You've got to be careful not to lose your localization - and to sustain your ability to reach and meaningfully connect with the audience on a local level.
As the major radio groups have consolidated and used more voicetracking and syndication, a lot of qualified radio personnel are "on the beach." Are you taking advantage of that potential talent for your stations?
We have been hiring and expanding our employment base, rather than the opposite. Generally speaking, we look for the best talent in specific positions of need. It's not easy to focus on revenue growth while, at the same time, trying to deploy new products. It takes a dynamic type of person. That's who we're looking to hire. We're a lot less focused on where the person worked last than we are on that person's capability, drive and desire. Sometimes, we find great people from large markets, but just as often we find great people in our small and mid-sized markets. Additionally, as we are not a traditional radio company; we continue to search for talent within and outside the radio business, to find people who bring fresh perspective and complementary skills.
So who, exactly, do you view to be competition - is it other radio stations or groups in each particular market, or is it satellite radio, Internet radio and digital tech toys?
We look at our position in a market like Evansville, for example, and we feel we're a competitor in that local media landscape. We're competing for local advertising dollars and consumer dollars in a robust field that includes other radio stations, local TV stations, regional cable system operators, directories, the daily deal companies, digital marketing services, movie theaters, concerts, festivals and theme parks. We're all after the same pie, so we expanded our sights in terms of dollars we want to go after. As highly competitive as our markets are in terms of the local media landscape, we believe there is less competition in smaller and mid-sized markets than exists in large markets, which is one of the reasons for our strategic focus.
Where does digital presence fall in Townsquare's overall business plan?
We are big investors and believers in our digital business. It has done very well for us, and it will continue to be an increasingly important part of our business. Our websites reflect our significant investment in our digital product. We expect digital to be a cornerstone of our integrated business, not just from an advertising perspective but from an audience demand and expectation perspective as well. We have to be available wherever, whenever and however our audiences want to engage with us.
So you disagree with those who say there's not a sufficient ROI in digital ... you're getting good ROI already?
Our digital ROI is not good; it's great. And our audience satisfaction is even better.
Currently, Townsquare is a privately-owned company. Could you foresee a time when Townsquare would entertain an IPO?
As of right now, we are not pursuing a public offering. Down the road, certainly anything's possible, but not now or for the foreseeable future.
What do you see as the biggest challenges in 2014 for Townsquare?
Our challenges are similar to the rest of the radio and media industry. We have to continue to evangelize advertisers on the power and resiliency of the radio product and educate advertisers on the breadth and depth of our expanded product offering. We also have to hope the economy continues to improve. We're coming off a multi-year period where we, and the world, felt an economic headwind. It would be a terrific, and welcome, experience to capitalize on an economic tailwind.
In general, we're running a business that is growth-oriented and focused on multi-product diversification. It's a complicated proposition that presents a whole host of challenges, but we're ready for them.