Radio -- Bankrupt in 6 to 12 Months

There's a reason radio executives are talking gibberish and not making any sense even as their industry fights for survival.

Come on.

Sales shortfalls can be solved.

Programming inadequacies can be fixed.

New media and mobile content can be our fast friend -- not that complicated.

If we know this, why don't the radio CEOs know it?

And the answer is -- they do, but their problems are much bigger than increasing sales or getting ratings.

Radio is over -- not because sales and programming can't be fixed -- but because the station's can't service the debt consolidators gleefully took on to put their groups together.

Now they're panicked -- I've used the word "panic" before and some may think it was for dramatic effect. But I mean it -- they are terrified, in a cold sweat, in a flap, in a fluster, in a tizzy.

Maybe you can even find it in your hearts to forgive Clear Channel's John Slogan Hogan for defending the firing of 1,850 employees recently. Then, less than a week later Hogan says that they also may be hiring.

What's that all about?

When Hogan tells Inside Radio “We’re going out and hiring real revenue and yield management expertise”, he's not fooling anybody?

Hogan's scared out of his mind. I don't know about you, but he's starting to scare me.

What do good radio people know about hiring revenue and yield management expertise? Hell, many don't even know what it means. They don't need to. They know how to make radio profitable. Don't go asking Bain Media consultants what to do.

Radio has always been a simple business -- and that's its beauty -- screw yield management. Stick to your rates. Stop selling cheap ads. Triple your sales force, don't cut it. Put a killer sales manager in who knows how to sell local radio. I believe even Hogan knows this.

So why, you ask, would he start talking "Bain babble" -- named after Bain Media -- Clear Channel's co-owner and apparent management savior?

Hogan has a five-year contract and if he has been paying attention to the "long-term" contracts Lee & Bain have been offering "key" executives, it's not worth the paper it's printed on.

When a radio guy spits out the company line that Clear Channel is looking for a more "methodological and mathematical" way to determine rates and commissions, you know Hogan has gone off the ranch.

When he says, “I can’t tell you if the reductions are done, because frankly I don’t know", I believe him. No one is asking radio people how to run their own business these days. Hogan answers to a higher power -- private equity -- and gets his instructions from them.

When Hogan talks about re-engineering the company, he's full of horseradish to put it nicely.

Look, let's put it out there -- real.

Consolidated radio groups are facing bankruptcy because some will not be able to restructure their massive debt -- the debt they acquired in the first place when they paid too much for overvalued radio stations.

No one worried about it then.

But now, it's time to pay the piper.

Why else do you think radio people who know better are hunkering down for what they know is coming -- default.

One reader, a radio executive, claims New York money types are not just talking about the possibility of radio groups defaulting, but the probability.

Some think it can happen within six months to a year.

Radio groups like Cumulus, Univision, Clear Channel, Entercom -- in fact, most of them -- have structures that make it difficult to survive if debt cannot be restructured. And in case you haven't noticed, money is hard to come by these days.

Viacom CEO Sumner Redstone's "short pants" make life precarious at CBS where I'll bet Les Moonves would sell the entire radio group if he could get a decent price. Hell, he can't sell most of the CBS Radio stations he previously put on the block. No one wants them -- at least -- not anywhere near the price CBS paid for them.

Radio groups are more susceptible because they are leveraged to such a high degree. That's the reason that the stock prices are so low. Shareholder equity is zero as every single penny of cash flow currently goes to servicing debt. Soon, they won't be able to service the debt and/or they will be in violation of covenants with the banks and/or equity lenders who will seek to take the stations back.

And if you're seeing blue skies in all of this -- like, the stations will be more affordable and groups of former radio people who know how to run them can now become buyers -- wait. Consolidation has run the radio business down and competing in this environment could jeopardize even these re-purchases.

The erratic behavior you are witnessing when bad things happen to usually good radio people is the realization that their gig may soon be up.

That's why you're seeing outlandish deals crafted to bonus CEOs as an enticement for signing an employment contract renewal when no bonus would be necessary. I mean who is going to steal Lew Dickey away from Cumulus? Does he need an $8 million pot sweetener? Let him leave for $7 million. Betcha he wouldn't and couldn't.

How about Farid Suleman's tax-free $11 million salary in 2007 (we're anxiously awaiting 2008 figures and expect his compensation to be just as outlandish). Is he just taking the money, the plane, the benefits while he can because even a bean counter knows what an 18 cent stock is going to get you, eventually?

Fired.

Employees who have lost jobs are scratching their heads wondering how did so many group execs forget how to put billing on a station.

Or, forget that radio works best when it is local.

The reason Clear Channel is gutting the company like my favorite fish monger in Toms River, New Jersey guts a fluke is because they know something their employees don't know (or don't want to know).

Consolidators put too much on their credit cards and you know what happens when you owe more than you can pay back. Consolidators have been doing it with mirrors for years now -- refinancing debt. The average person doesn't concern themselves with it. Wall Street-types are obsessed.

Radio was a business that never had "consolidation" in its future. It was a small, family-owned service that made a nice living for some and losses for others. But there was a prestige in owning radio stations. That's one reason why mom and pop -- or even Jefferson Standard Insurance and Nationwide -- wanted stations in their portfolio.

When the big deals were getting done in the mid-90's, I asked a friend of mine on Wall Street how these companies could manage the massive debt they were taking on. He told me then -- and reminds me now -- that they can't.

So, my friends, if it helps get all of us who care about this industry closer to acceptance of what is happening, the nonsensical decisions that are being made by not-ready-for-prime time radio CEOs are just holding off the inevitable.

And that is -- stations in default.

My GM, sales and programming friends always say they know how to fix the problems at local radio stations.

But the reality is that no one can fix the mess that consolidators and eager investment bank lenders got the industry in when they propped up a business that looked good for a while to investors but never had a chance because of unmanageable debt.

And, to borrow a phrase from the great Paul Harvey -- now you know "the rest of the story".

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