A lot of talk about Clear Channel being taken “private” as if that in and of itself is a good thing. Look at who actually bought CC and you realize that “meet the new boss – same as the old boss” is apropos.
Private Equity is the Gordon Gecko of the new millennium. It’s nu-Gecko – a metro sexual Gecko. It’s the kind of Gecko that still believes greed is good- he’s just not stupid enough to shout it into a microphone.
Instead of contentious hostel take-overs, buy outs – and callous breaking up of companies to sell off in little highly profitable pieces – PEGs are largely faceless, hard to demonize companies who pursue the same types of business plans quietly across a variety of different industries – and do so with more tact and patience than the fictional 80’s villian.
They often leave much of existing management in place to take care of the administrative affairs – mostly reducing costs. They act as partners in a process that’s ultimate aim is the same as Gecko’s – just a bit more humane. Like smart bombs. 😉
PEGs operate on 3-5 year plans. Buy companies – restructure to sell and/or put back into the public thru IPOs.
Like your neighbor who seeks out distresed home sellers to buy at a bargain – put a few grand into some paint and fake marble tile in the bathrooms to re-sell a few months later and pocket 30% profit. PEGs are flippers. Fair enough. Yeah Captialism.
Which begs the question –
Why the sudden interest in a stagnant growth industry like radio from Private Equity?
The main reason has to be the 3-5 year upside.
The thinking must be that current radio prices already fully reflect the competitive threats to radio. In other words – it won’t get worse.
All the tolls satellite radio, mp3, Internet will ever take on radio have mostly been absorbed and that’s why you can buy Clear Channel for far less than it “should be worth” – for far less than Clear Channel itself paid for the assets.
Okay – buying into radio is a bargain. So – where does the growth come from?
Further consolidation and mergers I guess. Still lots of room in radio to streamline operations – reduce costs.
I think it’s safe to say one of the places PE will look to reduce costs is in any future focused R&D type ventures that are currently not contributing to the bottom line.
Clear Channel in particular has “format labs” and other forward looking programs that will probably either be eliminated or dramatically scaled back. Although I have to think some of that will have to be kept in place – even if in name only – for PR purposes.
But – even after squeezing every nickle out these broadcasting companies – that probably won’t net the minimum 30% returns I’ve read PEGs demand for their efforts.
With stagnant to low single digit growth projections for radio – one has to wonder -where’s that cash coming from?
Let’s look at some 3-5 year positives for radio –
Sat radio could (probably) go under – giving investors more confidence in terrestrial radio again. Confidence is as good as cash on open markets.
Adoption of Passive Measurement can also increase confidence among advertisers who will pour more money into the medium knowing (finally) it’s a great value. (this gate could swing the other way too – proving once and for all that advertising on the radio is at best hit and miss – but I’m trying to stay as postive as possible here)
And – let’s not forget – reducing ownership limit regulations is also a very real possibility.
Is that enough?
After 3-5 years – who knows? And maybe . . . who cares?
Interesting little Nugget in the Clear Channel Investor FAQ
Question Number 21 – Will jobs be eliminated?
Second part of the answer –
We have been undergoing a shift in focus in the radio division, from being focused mainly on on-air broadcasts to a more balanced approach to investing in our business — that shift will mean more jobs focused on our radio business’s high-growth areas, such as online.