Will Clear Channel Sell More Stations?

June 29, 2009 After suffering a $428 million first-quarter loss and carrying the load of about $22 billion in total debts, Clear Channel may have to explore the option of selling more of its radio stations. A new article from the San Antonio Express-News says that analysts believe Clear Channel will have trouble making scheduled payments to its lenders later this year. The company, down to about 800 stations from its peak of about 1,200, either will have to start selling radio properties or go into bankruptcy, where lenders will put stations up for sale. With slumping advertising revenues and little prospect for refinancing its debt, there may be no other option for the broadcaster. "It's a perfect storm," author and radio industry forecaster Alec Foege told the Express-News. "The financial moves by Clear Channel were aimed at enriching the executive team at the expense of the shareholders. There's still financial acumen at the company, but it doesn't extend to solving its financial problems in terms of marketing its core product." Earlier this month, Clear Channel announced that it wanted to reposition debt between its radio and billboard divisions. However, the lenders who financed the private equity acquisition of the company said they would block the move because they would rather wait on it in hopes that Clear Channel violates its lending agreements. That way the lenders can take control of its assets at a discount and then sell them. The lenders reportedly feel that this is the way to get the most amount of money back from the loans they made when Bain Capital and Thomas H. Lee Partners acquired Clear Channel in 2008. But as of right now, Clear Channel is not violating any agreements and the negotiations are continuing. Foege believes several radio companies would be happy to get in on a bidding war for Clear Channel radio stations, such as CBS Radio, Citadel Broadcasting or Emmis Communications. "Radio is not headed for extinction. Advertising will return at some point," Foege told the Express-News. "Radio offers value, even compared to the Internet. The Internet doesn't yet serve local markets as well as radio... Free commercial radio is still compelling. It's hard to argue with free. There are still listeners, and advertisers realize this."

Signals for radio's future are anything but clear

"Slacker and Steve" ply their trade on FM radio's "Alice." KALC-FM, 105.9, owned
by Entercom, is one of Denver's big four radio stations. (Andy Cross, The Denver Post)

Ever since radio eclipsed sheet music some 80 years ago, the airwaves have been the go-to place to find new songs and fresh news.

Along the way, broadcast radio stations made money. Advertising revenues grew reliably nearly every year.

But these days, radio faces an army of competitors — all at once. Satellite radio, MySpace pages, iTunes. And people can talk on the phone while they drive, all instead of scanning the radio.

People are still tuning in — Denver's stations together pull a whopping 2.1 million listeners each week — but they are listening for shorter periods of time. And radio is making a lot less money.

Broadcasters remain confident, however, blaming their woes on the troubled economy.

"I've been doing this for 50 years and I've never seen anything like this," said Clear Channel of Colorado chief Lee Larsen.

They are quick to point out that, like newspapers and local TV stations, they still draw mass audiences. But they acknowledge that radio has joined other media under assault by new technology.

At radio stations near and far, layoffs and low morale have become common. Citing "an unprecedented time of distress," the gargantuan Clear Channel radio chain this year cut 9 percent of its staff, or some 1,850 workers nationally; roughly 20 locally. Among the disappeared: local favorites like Pete MacKay and Steve Millin dismissed from The Mountain; and Steve Cassidy, out at KOSI after 20-plus years in the market.

Off the cliff's edge

Just four years ago, radio was a $21 billion industry nationally. Not now. In the first quarter of 2009, radio revenues fell 24 percent to $3.4 billion, industry watcher MediaPost reports. Media analyst Jack Myers estimates ad spending will plummet another 19 percent this year, and another 4 percent in 2010.

Wages are frozen companywide at Entercom, one of the five biggest radio companies in the country and one of the big four in Denver.

Denver radio fans still mourn the loss of treasured independent station KCUV, gone last year, along with four on-air personalities: G. Brown, Zak Phillips, Benji McPhail and Mike Wolf.

The latest station sale sent shockwaves through the industry: Wilks Broadcasting this year paid $19.5 million for three Denver FM properties formerly owned by CBS. Previously, the stations would have sold for several times that.

Those high-profile drops overshadow the industry's strength as a whole. Radio remains very much a part of the media landscape. America Media Services reports that 64 percent of American adults listen to the radio once a day; 80 percent say they listen while driving.

"Radio is not suffering on the ratings side; we're suffering on the economic side," said Clear Channel's Larsen, who oversees eight local stations.

In the most recent ratings, Arbitron reported that 325,400 people in the Denver area spent some time each week listening to talk powerhouse KOA. That's second only to teen-friendly KQKS, which scored an average 366,700 listeners a week.

Radio remains a touchstone for baby boomers who count on music sage Bret Saunders' wit on KBCO during the morning drive, young women who roll to Slacker and Steve's afternoon show on "Alice,"and the country fans who start the day with Mudflap, Kelly Ford and Ed Greene on KYGO. Fledgling Colorado rock bands count on KTCL (93.3 FM) to give their music exposure.

Uncharted territory

Local executives believe radio is suffering because its biggest advertisers, automotive and retail, have been hit hardest in the recession.

Analysts aren't as optimistic. "There is reason to believe these media are entering new, uncharted territory characterized by long-term declines that will continue even after the broader recession is over," speculates media watcher Eric Sass in MediaPost.

Part of the problem: radio is no longer the center of the audio conversation. It's moved to downloads and the latest mobile device. Distracted, radio listeners have begun tuning in for shorter stretches.

Per week, "the average amount of time spent listening to the radio is down significantly, dropping 5 percent from 19 hours and 32 minutes in 2007 to 18 hours and 30 minutes in 2008," according to MediaPost, which tied the decline to the growing popularity of MP3 players and iPods, "as well as non-radio audio delivered via the Internet."

Analysts do predict the industry will hit bottom in 2010. But some doubt things will improve dramatically.

Another worrisome trend for radio's future: more than 70 percent of teens have an iPod or iPhone, according to the latest study by New Jersey-based Edison Research.

Even as it reflects the national economy and awaits a rebound, radio is at a crossroads. Is it your grandfather's medium? Or is radio building toward a future that moves beyond over-the-air broadcast?

Analyst Sean Ross at Edison Research says "everyone will tell you radio will be fine, and everyone will tell you radio will not be just on the AM-FM receiver" in the future.

Just as newspapers will continue to be available online rather than primarily in print, radio will move increasingly to the Web, with a tiny minority of listeners still dependent on over-the-air transmissions.

Defenders say radio's immediacy and localism will save it. No matter how they receive it, listeners still need Front Range news and weather.

"We dropped Rick Dees (a syndicated talker out of L.A.) not because he's bad but because the future of radio is local," according to Jeff Wilks, whose company acquired three Denver FM stations from CBS Radio this year.

Ads are still a bargain

Broadcasters see other good omens. For now, their best argument is that radio advertising remains a bargain — about one-third the cost of TV. At the premium end, the difference is even greater: A spot within KUSA-Channel 9's No. 1 late newscast costs four times as much as a drive-time spot on No. 1 KOA.

"Frankly, everybody's hurting. We've been able to negotiate better rates across all different types of media," said Tracy Broderick, director of audience planning at Denver's Karsh\Hagan. She adds, "You get what you pay for."

The industry mantra is that the audience is there to be developed. Arbitron claims that 235 million Americans, or 91 percent of people over 12, listen to radio each week. Even 89 percent of teens listen to radio, whether it's traditional AM-FM, online, satellite or podcast.

For the first time in a decade, Edison Research says, new Top 40 stations are showing the potential to win teens back. KONN ("Hot 107.1 FM") and KQKS ("KS 107.5") are Denver examples of the CHR, or "contemporary hits radio" formats, endlessly playing Beyonce or the Black Eyed Peas and drawing teens.

"Radio is resilient. You can't kill it," said Steve Cassidy, who is between jobs. "Talk about the original social networking — we were always the social network."

New media don't make old media obsolete, but every new device takes attention away from the old ones.

To wit: Sheet music hasn't gone away; it's migrated to the Web, where downloads sell briskly. A site called Musicnotes.com has sold more than 5 million sheet-music downloads since its start in 2000 — at $5 a pop.

Joanne Ostrow: 303-954-1830 or jostrow@denverpost.com