Big Isn’t Broken

One of the main ideas being expressed in commentary about the Clear Channel sale is that it’s business model of “getting big” is broken. That “consolidation failed”.  

I don’t agree.  

By what standard of measure does one conclude that BIG is broken?  Or consolidation failed?  

The answer being given is that Clear Channel – after becoming the biggest radio company thru acquisition after acquisition failed to deliver per share returns expected by Wall Street, and has thus withdrawn from the public equity market and gone private.  

That’s it?  

Failing to deliver 15% per year share price growth is one thing.  Failing outright its quite another and we shouldn’t get the 2 confused.  Clear Channel is NOT a failed company.  

Had Clear Channel TRULY failed, the company would have been broken up into lots of smaller, much more highly profitable pieces.  It hasn’t.  I’ll address the 450 spin offs in a minute.  

Clear Channel  has changed where it gets it’s expansion money from.  That’s the big story. Clear Channel no longer has to play games to make it’s public stock look like Google.

But it DOES still have to generate MASSIVE returns to the private equity folks.  But they don’t need to manufacture results THIS QUARTER.  They’re on the 3-5 year plan.  

So has BIG really been repudiated?  Has economies of scale really failed?

If you still think so then you’re forced to answer the question being begged –  Would shares in public radio companies in a non-consolidated radio business be returning 15% a year – the Wall Street expectation?  

I don’t think so.  

There’s simply not enough pure business growth happening in radio. It’s a lucrative business with desireable assets – it’s just not growing at the clip public markets want.

So Radio, whether big or small, many or few -is not going to be an attractive public investment in the current market.  

Maybe those people want to say “Wall Street Radio” failed. Fine.

But “Big Radio” has yet to kick the bucket.

So what are we left with.  Clear Channel sells off almost 450 stations. 

On the surface it looks like Clear Channel is going back on the “get big” strategy. 

Consider that those 450 station (over 40% of the total number of stations owned) contributed ONLY about 10% of the company’s revenue.

Let’s be honest here – from a big business owner’s perspective (40% of your assets are contributing only 10% of your revenue) – that’s like working for minimum wage. 

On a personal level -imagine taking a second job that required 40% of your time but only boosted your income by 10% – you’d probably quit.

That’s what Clear Channel did. Jettisoned those stations to focus their attention on the properties that have the best chance of churning out the most cash.  And get more.  

Yes more.  I think it’s a mistake to think Clear Channel is out of the acquisition business.

Clear Channel is still big.  It’s massive actually.   And it’s probably going to get even bigger over the next few years.  

They may spin off a few sticks here and there – but I suspect they’ll be picking up as many winners as they can also.  

And while it’s possible a few mom & pop operators may emerge from the 450 CC spin offs – it’s more likely they’ll be scooped up by already BIG radio companies – like the one I work for Cumulus. Or – another group could develp to buy most or all of them at once.

Big radio isn’t broken or even dropping a few pounds – it’s just updated it’s fashion. 

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One Response to Big Isn’t Broken

  1. Pete's View says:

    Clear Channel sale means opportunity

    Mark Ramsey has an interesting conversation with Bill Figenshu about the sale of Clear Channel Radio. 
    Bill thinks it opens the door to a class of innovative station operators willing to take risks and explore new ways to engage the audience. I su…

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